The profit downgrade and near halving of the Mayne Group share price is a case study in how poor people management can rapidly dislocate a firm from it's market. Critical lessons can be learnt concerning business structures and management.
The Mayne hospitals suffered when their feeder doctors sent patients to opposition hospitals causing a collapse in revenue. The surprise is that the management of Mayne come from a tradition of structuring companies (Shell and Colonial Bank) where the opposing management paradigms of centralised coordination and decentralised market focus were successfully combined to create sustained profit. The management concept is simple but the practice an art form.
Both Shell and Colonial Bank meshed two structures. Close to their customers, they collapsed the command/ control structure and franchised their shopfronts; Shell with petrol stations and Colonial Bank, in its pre-Commonwealth bank days, with suburban branches. Under franchising, shop fronts take on the best elements of small business with the local franchisees frantic to look after their customers. This institutionalises a dynamic "feel" for a market that no monolithic, central organisation can replicate. It also largely eliminates the industrial relations restrictions that beset monoliths.
Overlaying the franchise structure, Shell and Colonial Bank interfaced the advantages that centralised organisations can deliver. This includes mass marketing, branding, bulk buying, production and application of finances. In this model the centralised organisation must service the needs of franchisees but franchisees must accept disciplines from the centre.
The dual structure creates a form of internal markets where relationships in the firm reflect those of buyers and sellers rather than command and control. What follows are natural human tensions from competing egos and perceptions of opposing financial interests. Franchisees actually think they have a right to demand results from the centre! Managing the tension of these potentially conflicting structures is the art form that makes the model work and determines success or failure.
The dual structure succeeded at Shell and Colonial Bank but went horribly wrong in Mayne's private hospitals. The alleged improved centralised structures created at Mayne failed to service the needs of Mayne's natural franchisees, the doctors who simply directed the market (patients) away from Mayne. It should have been predicted that doctors would prove prickly franchisees being highly educated, comparatively wealthy, business savvy and could shift the market without damaging their wallets. And this reality should have signaled the "art form" required to run Mayne.
Instead Mayne failed to satisfy their franchisees, the doctors and it was this poor servicing of their internal, franchisee market which then caused dislocation from their ultimate market, patients. The Mayne lesson applies to all large businesses.
Markets are too fickle and disparate for big command and control structures. Companies can succeed by creating internal markets to maximise focus on end customers. But in following this structure, astute management of internal markets is critical to success.
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